Posted
by
timothyon Thursday February 07, 2013 @01:45PM
from the bet-you-can't-do-it dept.

Frequent contributor Bennett Haselton is still thinking about prediction markets, and giving away money. He writes: "In an article last December I described a problem with prediction markets, where even markets with cap on betting limits could be manipulated by a single trader willing to spend a lot of money to distort the marketplace odds. So I offered a $100 cash prize to be split between readers who collectively came up with the best solution to the problem. Here's an idea that I think would work." Read on for the rest.

In November I wrote an
article
arguing that prediction markets like Intrade -- where users can bet on the odds of, say,
Obama or Romney becoming president -- were a useful tool for aggregating the wisdom of crowds, but
could be manipulated by someone placing a large bet in order to create the illusion that "the markets"
were favoring their candidate. If the fake "market odds" were reported in the news, it could have the effect
of causing more supporters to switch to that candidate, thus increasing the true odds of their victory and
creating a self-fulfilling prophecy before the markets had the chance to correct themselves.
The solution, I thought at first, was to have a cap on the amount that
individual users could bet (which is one of the rules at the
Iowa Electronic Markets), and make it illegal
for a single mastermind to pay large numbers of third parties to make bets in order to circumvent the
single-bettor limit.

As I admitted in a follow-up
article,
it turns out this regulation would not work after all. The problem is that as long
as long as overseas betting markets like Intrade have no limit on wagers, a market manipulator could place a
huge bet on Intrade to cause the odds to shift on that market -- for example, changing the odds of Obama-to-win
from 4:1 to 6:1. Meanwhile, the odds in a domestic prediction market with a betting limit -- call it CappedEx --
would initially stay at their non-manipulated value of 4:1. But then "arbitrage players" could spot the difference
in the odds being offered, and make opposing bets in the two markets in a way that would be guaranteed to make
a net profit. (The details are spelled out in my
last article,
but basically, any time two markets are offering different odds of an event happening, you can pick appropriate
amounts to bet in the two markets so that you're guaranteed a profit whether the event occurs or not.) These arbitrage
players would continue making opposing bets in the two markets until the odds being offered in the two markets converged
onto the same value -- at which point, the market manipulator has successfully manipulated the odds in the capped
market, even without ever placing a bet there. Essentially, the market manipulator has hired all of those arbitrage
players and paid them to make bets on his behalf, but done so indirectly to avoid violating laws against hiring an army
of bet-placers.

I should be clear about the two different time frames being discussed here. If a manipulator places a large bet on
Intrade, causing the odds on Intrade to diverse significantly from the odds on CappedEx, then the arbitrage players
should cause the odds on the two markets to converge to the same value very rapidly -- plausibly in
less than one minute. (Whoever spots
the difference first, gets guaranteed free money. It would be easy
to write a bot that could watch for any divergence in the odds in the two markets, and place guaranteed-profit bets
as soon as a gap appeared.) Then, as political observers noticed that the odds have shifted (without any real-world event in the
news that could plausibly explain the shift), another wave of bettors would take advantage of the distorted odds,
to bet on the side of the event whose odds had been artificially lowered by the market manipulation. (The odds
favor making such a bet, although it's not as good as a guaranteed profit.) As enough people made these opportunistic
bets, the market odds would correct themselves to their original values. However, this second wave of betting would
probably take a few hours, because it requires humans to think critically about the events.
(One likely case of manipulation managed to
shift the odds for
a few minutes for just $20,000, so it's not unreasonable to think that a million dollars or two -- still
small change by the standards of presidential candidates, especially when it's not subject to spending limits --
could distort
the market for several hours.)
The danger is that the market manipulation could cause the odds to shift in the capped market almost instantly, but
the market correction would not take place until several hours later, and in that time the damage (in altering people's
perceptions, and possibly creating a self-fulfilling prophecy) would already be done.

It didn't seem like there was any obvious solution to this problem. The U.S. government could ban its citizens from betting on
foreign uncapped markets, but it would be too easy for a U.S. citizen to coordinate with an overseas partner
to place the arbitrage bets together and split the profits. Or the U.S. could try to ban prediction markets entirely
(capped or uncapped), but many economists argue that they're a useful tool for assessing the wisdom of crowds to
assess the odds of an event. You could ban media reporting on the odds given by prediction markets (to try and
avoid the self-fulfilling-prophecy problem), but that would probably be unconstitutional in the U.S., and unenforceable
anyway if people could get their news from overseas.

So in my last article I offered up to $100 to be split between readers who came up with the best arguments for how to
stop prediction markets, even markets with individual betting limits, from being shifted by manipulators who place large
bets on foreign markets and then count on arbitrage players to pass on the effects to the capped markets.
(I've
offered cash prizes
to readers who submit winning ideas before, and it usually doesn't take this long to get
to the follow-up and pay out the prizes. Some follow-up articles that I submitted got lost in the editors' spam
filters, sigh, and then there were some other articles in the pipeline that had to go out first. If I offer
prize money for ideas and you submit a winning idea, normally you'll get your money much faster.)

Before reading any further, you might want to stop and try to think of what you would consider to be the best
solution to this problem (even if the prize money has already been allocated), and then compare it to what we
came up with.

... And, welcome back.
Here's what I think is the best answer so far: For each event that the capped markets allow users to bet
on, the capped market should also be required to monitor the odds that any overseas uncapped markets are offering on the same event. Then
if there has been any recent time period where the odds on the overseas markets differed
significantly from the odds on the domestic market (significantly enough to indicate manipulation -- and, similarly,
significantly enough that the difference probably motivated arbitrage players to place bets to close the gap), then
the reported odds should appear with a disclaimer saying, "There was a recent divergence in the odds on capped
vs. uncapped markets, so the odds displayed here may have been manipulated, and should be regarded skeptically."
This would help to avoid the self-fulfilling prophecy problem,
if people are less likely to regard the manipulated odds as a reflection of reality.

The key assumption here is that if a real-world event happens that changes the probability of, say, an Obama victory,
then the market odds in both the capped and uncapped markets should shift at about the same time to reflect that
new probability. On the other hand,
if the odds have shifted significantly in only one of those markets, that could be taken as a sign
that that market was being manipulated.
Arbitrage players would still be free to make opposing bets in the two markets to narrow the gap, so the
odds in both the capped and uncapped marketplaces would
still change in the short term, but in the regulated capped market, the odds
would be reported with a disclaimer that they're not reliable. After a few more hours, opportunistic bettors would make
bets taking advantage of the distorted odds, and the market would correct itself.

This idea did not come from any particular reader but came up as the result of the back-and-forth I had with
several people.

A few readers also had interesting ideas for regulations that could fix the problem if they could
be applied to all markets.
For example, Nathan Dykman suggested that in order to wager larger amounts, you would have to wager that your
candidate would win by a larger margin (e.g. if you can bet $1,000 that Romney would win by 1 million votes or more,
or you could bet $10,000 that Romney would win by 10 million votes or more -- so that large "manipulative" bets
would stand out more obviously).
Andy Jobe suggested "staggering" bets so that high rollers could only bet large amounts by placing lots of small
bets in sequence, paced slowly enough that the market would probably detect the manipulation attempt and start
correcting for it, before all of your bets went through.
Jonathan Pearson suggested mandating that markets report the number of
people making particular bets as well as the market odds, so that single large manipulative bets could be easily
spotted. Ben Griffin suggested simply requiring disclosure of large bets by certain people (as he put it,
the headline "Saudi Prince believes that Romney will win the election. What does he know that we don't?!" contains
more useful information than "Romney's odds of victory looking better at Intrade").

I think these points are all correct, but the problem with all of these ideas is that they only work if all of
the relevant markets are regulated. And if you allow that assumption, then the problem becomes trivial -- because
you can just require an individual betting cap in all of the markets. On the other hand, if there's at least one
market anywhere in the world that is beyond the reach of your regulations, then they don't have to disclose any statistics
about their bettors or follow any other rules that you make. Then when a manipulator places a large bet in that unregulated
market, when the arbitrage players place their many small corresponding bets in your domestic regulated market, the
detection mechanisms described above,
won't do anything to stop that -- those bets in your regulated market look like real bets because they are real bets.

By contrast, if you require domestic capped markets to monitor the overseas uncapped markets,
and disclose if the uncapped odds have diverged recently from the capped odds,
this still works even if the regulations only apply to your domestic capped market. People can still place
manipulative bets on foreign markets, but if the media reports the current "market odds" by looking at the capped market,
those odds will be harder to manipulate without getting caught, because they'll run a disclaimer if
manipulation has been detected recently. (Of course if the media gets their "odds"
from the overseas uncapped market, and reports those odds as literal truth even when the domestic capped markets are running
a disclaimer saying that those same odds have recently been manipulated, we can't do anything about that. The hope is
that news agencies, no matter how lazy they may be,
will at least choose to report accurate information if it takes the same effort as reporting
inaccurate information, and thus would prefer getting their information from the domestic capped market, where they
can easily check if there's a disclaimer saying the odds have been manipulated recently.)

Some interesting points made by other readers:

Carl Pearson mentioned that if campaigns had to start diverting attention to prediction market manipulation in
addition to all of their other business, this might hurt small third-party candidates more than big campaigns -- because
smaller campaigns have fewer available resources to put towards handling new kinds of problems. (True, I think, but
only if the markets can be manipulated. If they can't be manipulated, and they're just a barometer of what people
are thinking will happen, then you don't need to waste campaign time fighting on that front.)

Michael Mendenhall pointed out that even in a capped market, the cap should be high enough to create a high "signal-to-noise"
ratio. If the cap is too low, the market odds will reflect the betting of more uninformed people who use the betting
as a low-cost opportunity to cheer for what they think should happen instead of what they think will
happen. (On the other hand, if the cap is too high, then the market is too easily to manipulate.)

Marc Beaupré argued that prediction markets can probably never be stamped out anyway, because anonymous payment
protocols like Bitcoin make it possible for
crypto-anarchists to place best on unregulated
darknets
where they can ignore caps and disclosure requirements all they want. I'm not sure that's true (how do you place
a bet in an anonymous peer-to-peer market -- who enforces the payment from the loser to the winner, depending
on the outcome?) but it actually doesn't change the main thrust of my argument -- you can still have a regulated,
capped domestic market, which is where the media could go for accurate information about the current market odds.
So a manipulator could throw their Bitcoin money away on an unregulated peer-to-peer betting network, but it
wouldn't do them any good.

Splitting the $100 in prize money, all 7 of the readers credited here get $15. There
may be a simpler idea that we missed, or a different reason why this proposed idea would not work.
Either way, I'm always grateful for the high quality of the comments that get emailed to me as part
of these contests. Eventually I'd like to run some article contests for people to email ideas
for a follow-up article,
but without offering prize money, to see if that affects the quality of the submissions.
It would be impossible to run a precisely controlled experiment (because you can't write a single article
where half of your readers are eligible to submit ideas for prize money, and the other half are expected
to submit ideas for free), but if we run contests for a large number of articles, and about half of
those contests involve cash prizes while the other half offer only acknowledgement, it should eventually
become clear if there's a difference in the quality of submissions.
It may be
that, unlike prediction markets, idea-improvement contests work just as well when there's no money involved.

This is a little off-topic, but it looks like the Iowa Electronic Market did unexpectedly poorly with the election this year.

See http://www.pollyvote.com/

"The task of predicting U.S. presidential elections is ideal for demonstrating the usefulness of combining forecasts, as there are a number of different methods that use different sources of information, or process it differently. In addition, it is difficult to judge a priori which component forecast is likely to be most accurate at different times in a c

Honestly, I can't make anything out of this stuff. If we want to know the outcome of elections, can't we just count the votes? And if we want to loose money placing bets can't we just bet on sports games or buy lottery tickets?

If we want to know the outcome of elections, can't we just count the votes?

Because the election hasn't happened yet? And it's an important decision that affects a lot of us?

Well, if that's an issue to you hold the elections a week earlier.

And if we want to loose money placing bets can't we just bet on sports games or buy lottery tickets?

Because that is useless shit?

Agreed, but it is what prediction markets are, a way to bet on something. All the talk about it is just people trying to pretend their betting somehow isn't the useless shit it really is. Prediction markets is betting for snobs, nothing more.

Then all the problems just get moved up a week. Unless you do all elections for the rest of time right now, there's always going to be someone wondering what the result of an election which hasn't happened yet. And a prediction market is a good way to answer those questions.

Agreed, but it is what prediction markets are, a way to bet on something. All the talk about it is just people trying to pretend their betting somehow isn't the useless shit it really is. Prediction markets is betting for snobs, nothing more.

Stock markets, particularly with respect to stock options, are also prediction markets. Sure you may be right that it is betting for snobs. But there are a bunch of incredibly rich snobs as a result.

Then all the problems just get moved up a week. Unless you do all elections for the rest of time right now, there's always going to be someone wondering what the result of an election which hasn't happened yet. And a prediction market is a good way to answer those questions.

The other option would be to accept you don't know the outcome of an election till after the election. Sure people will keep asking 'who will win?', but there is no pressing need to answer that question in any other way then counting the votes. I'm serious here, what is it that goes horribly wrong if we don't know the outcome of the elections beforehand?

Stock markets, particularly with respect to stock options, are also prediction markets. Sure you may be right that it is betting for snobs. But there are a bunch of incredibly rich snobs as a result.

Yeah, so? People got rich in all sorts of ways, doesn't necessarily make it a good idea or something we should want as a society. 'Make a few people rich at

Stock markets, particularly with respect to stock options, are also prediction markets. Sure you may be right that it is betting for snobs. But there are a bunch of incredibly rich snobs as a result.

Yeah, so? People got rich in all sorts of ways, doesn't necessarily make it a good idea or something we should want as a society. 'Make a few people rich at the expense of a lot of others' doesn't fit my idea of 'useful'.

Ok, so you don't understand the value of stock markets. They don't operate that way. Instead, they are very efficient at providing capital to public corporations. I have yet to see this "make a few people rich at the expense of a lot of others".

Similarly, prediction markets would be relatively efficient (as in, you're not going to find a better process out there) at evaluating the likelihood of events traded on the market. If the events aren't particularly valuable (such as numbers in a lottery or which

If you want good examples of things that do that, betting on sports is a great example. Lotteries can be as well, depending on what the money gained from the lottery is spent on. It's fairly common for public funds to be squandered on cronies and other sorts of corruption.

I was going to comment that someone would post tl;dr, but in doing so I would manipulate my own prediction, thus leading to a comment section without any such posting from another slashdotter. Wouldn't want to do that. Or become your own grandfather. Ick.

It's not based on absurdities at all. Don't let your ego assume things you don''t understand are absurd.

Feel free to explain why prediction markets should be unbiased.

Or, just look at your vast history of posts that nobody upvotes or cares about. You would seem wiser if you typed less.

Even your sig is sad: do you get confused by others' snark, or do you wonder why others don't recognize your incoherent utterances as snarky? Did you ever have sex with a girl who didn't have panties emblazoned with "Insert here" on the front?

The hope is that news agencies, no matter how lazy they may be, will at least choose to report accurate information if it takes the same effort as reporting inaccurate information, and thus would prefer getting their information from the domestic capped market, where they can easily check if there's a disclaimer saying the odds have been manipulated recently.)

My point is last time this twit had exposure, we as a group thought about it.

Our conclusion: Ether the predictive market is big and not susceptible to market manipulation or it is small and it doesn't matter who tries to manipulate it because nobody pays attention to it anyhow.

'This is not a problem' was apparently never considered as one of the top 10 solutions. Typical. It would interfere with his manifestos.

Also the fact that features of betting escape him (for example, bookies don't give equivalent odds on both sides of bets) makes the rest of his analysis useless. Kind of like the Unibombers manifesto. When there are 10 fallacies on the first page their isn't much point in following the 'reasoning' past there.

Again, this is repetitive. We heard from the 'Markets are Imperfect and therefor broken' crowd. Give us one example of how easy it is to manipulate large markets? Fictional examples are not accepted. 'Trading Places' is fiction. Penny stocks are not large markets. Earnings games are internal, not applicable to political predictions markets.

Just off the top of my head I can come up an example of Billionaires losing their ass trying to manipulate markets; Hunts, Silver. They are now merely millionaires.

Again ether the option is thinly traded and the options price curve is largely ignored and you can afford to move it or the options price curve is useful market information and you can't afford to move it. There is a range where it's not useful and you can't afford to move it.

I read your link. He's as relevant to economic regulation as Stalman is to electorate theory. As with the old joke about asking a chess champion for military advice, leave them to what they are good at and find someone else for other subjects.

I won't disagree. Many of the subjects outside of censorship that Bennett pontificates on make me roll my eyes and stop reading. But the question was "Why does this guy get front page exposure".. If Stallman decided to pontificate on electorate theory he'd probably make the front page just as fast.

I have no problem with front exposure or his long treasties on anything. I have a problem with the editors publishing all of it. Seriously how hard is it for the editors to insist he post it all on a blog to which Slashdot will provide a link?

You may not agree with him, or think that there is a problem here. But he's not exactly a moron.

There may be many areas in which he in knowledgeable, but in these screeds he presents as a moron.

First, in his comparison of capped and uncapped markets, why does he ignore limit vs. no limit poker? This seems a good analogue in terms of the ability of deep pockets to affect one form of the game.

Second, what is his obsessions with the US presidential race? I don't think he addresses this above, but one of his previous postings suggested someone might affect the results of the presidential election to col

That depends how much money is riding on that bet. If you have a bet that pays a hundred billion dollars to you if Ron Paul wins the presidential election, then you have a little bit of incentive to throw things Ron Paul's way.

That depends how much money is riding on that bet. If you have a bet that pays a hundred billion dollars to you if Ron Paul wins the presidential election, then you have a little bit of incentive to throw things Ron Paul's way.

But even with that crazy amount (what market is going to cover your hundred billion dollar bet?) I contend you can still gain more money through corporate subsidies, defense contracts, military action, MFN status, etc. by controlling who gets in to the White House.

If you come back and say, it's not about fixing the election and controlling who wins, it's just about winning a bet on who you think will win, then the whole debate is a non-story. That's not market manipulation, that's just plain old winning a

My read: He thinks someone will bet big on the election predictive markets and that will influence those who only want to have voted for the winner. He thinks this could be enough to change the outcome of the election. Obviously you could posit a one vote margin election...

Sort of like what both sides do with polls. Only slightly less transparent.

It still makes no sense. Even accepting a one vote margin, how do you know ahead of time

But even with that crazy amount (what market is going to cover your hundred billion dollar bet?) I contend you can still gain more money through corporate subsidies, defense contracts, military action, MFN status, etc. by controlling who gets in to the White House.

Ok, how about a trillion dollars? The amounts can get crazier. At some point, the stake is going to become big enough to justify the loss of power. In open ended markets, the potential is there for really crazy maneuvers, should the stakes get big enough.

This is why stock options are capped markets, BTW. Because otherwise the market could build up to the point where it becomes worth someone's while to do something crazy (say like blowing up the company headquarters or faking a ridiculous takeover bid) in

Ok maybe market manipulation affects US elections even less than voter fraud (i.e. no effect at all) and this is just a solution in search of a problem. But the method in which he got his answers has some interesting possibilities. He notes that his paid idea contests have good results and wants to compare them against unpaid idea contests. If paid ideas turn out to be better (yeah I know, but who's judgement, etc...details details), that could introduce an entirely new and much better type of internet foru

Let's hold up a bit. Whether or not he's wrong, I think the type of thinking he does is useful here.

Our entire society is detail-obsessed and linear thinking obsessed. Hazelton offers another view, which is a top-down analysis based on a high level of abstraction. If new ideas are going to emerge, they're going to come from this process, not more churning through details based on past precedent.

I think what he's doing here is quite valid. Markets need some regulation; that's clear, and as much as I'd like t

When this was on Slashdot before, I and others said this wasn't a real problem and no solution was needs. I'm still convinced this is true. The manipulator would just be wasting their money, so there's no problem to fix. If someone tried it, I'd love to take the easy bet against them. There will always be more people looking to profit by taking a manipulator's bad bet. If we have more manipulators than greedy players, no system is safe.

Accurate predictive markets influences every other market.So as a predictive market begin getting to a certain percentage, people can use that information to make decisions in other markets, like the NYSE.

And by people, I mean computers.. in milliseconds.

It can also lead information to get out , for example '70% likely hood person X will become president.' That in turn influences voter turnout.

Another issueYou are also rewarding people who can influence outcomes for the outcome of a predictiv

your scenario about elections being swung through manipulation of odds on Intrade is based on an assumption that large numbers of voters pay attention to the odds on Intrade and that those odds influence their votes. I'm not sure I believe either to be true.

I suspect your ideas are more applicable to stock markets where thinly traded stocks are in play among day-traders..

your scenario about elections being swung through manipulation of odds on Intrade is based on an assumption that large numbers of voters pay attention to the odds on Intrade and that those odds influence their votes. I'm not sure I believe either to be true.

Actually, what it actually relies on is that a small-number of opinion leaders in media pay attention to Intrade, and that a large number of voters are subject to influence by the same small number of opinion leaders in media.

The logic goes like this:1. Manipulator with a large amount of cash to blow through places a large bet on Intrade and similar sites in favor of a candidate.2. Media dutifully report that Intrade is giving odds in favor of the preferred candidate.3. Voters mindlessly vote for whoever does best on Intrade.

The thing is, step 3 is wrong. Very wrong. What your average voter hears when media talking heads are talking about Intrade is "Shut up and tell me how the Knicks did last night!".

It's known the winner will have supporters who continue to vote and the loser's will not bother, on the west coast after a winner is declared (I suspect this drove Rove's apparent madness, trying to keep Romney supporters going , not for Romney, but for other elections where a crash of Republican support may matter, even if Romney's fate was already decided.)

Most voters probably don't check Intrade, but they do watch the news. And media companies are likely biasing their coverage on the results of Intrade. Voters may be stupid but are not mindless. They do understand concepts such as wasted votes.

The logic goes like this:
1. Manipulator with a large amount of cash to blow through places a large bet on Intrade and similar sites in favor of a candidate.
2. Media dutifully report that Intrade is giving odds in favor of the preferred candidate.
3. Voters mindlessly vote for whoever does best on Intrade.
The thing is, step 3 is wrong. Very wrong.

Well, the logic you present is inaccurate (at least as to the general argument for prediction markets influencing results; I'm not going to bother going back

Exactly what I was thinking. Switching a choice may apply in some situations, but when it comes to something like a Presidential election, people are simply less likely to show up if they feel that their preferred candidate is already well-represented and likely to win. And for those on the fence, information like this would rarely influence them anyway. If anything, I'd think it may actually encourage some fence-straddlers to vote for the underdog.

1. Betting market odds mean exactly diddly-squat for the actual election.2. Your writing is terrible, so even if they betting odds did matter your wall of text would still not be given a shit about.3. Your ideas are worse than your writing, but that's a repitition of 1.

That you have to pay people to read your garbage and engage with you should be all the hint you need to have worked that out already.

I know, you would rather wait until it's a serious problem so you can complain about why no one did anything. Cause complaining is all you do.

I'll do something. Starting right now I'll vigorously ignore prediction markets. If enough people do the same their impact will be minimal and we won't have about it ever again. Sometimes ignoring the problem actually does make it go away. This is one of those times:)

They aren't having any impact at all. Polls are orders of magnitude easier to easier to subvert anyway.

Yes a betting market should give an indication of what "the market" thinks the result will be. And that means diddly-squat when deciding whom to vote for.

And if there are people stupid enough to change their voting behavior based upon who other people think will win then the problem solves itself. There are two big parties. If one spends $X to move the odds, then it costs the other side exactly $X to move

During the first election of Obama there was a Fan of McCain that attempted the manulation. Spending about 1.5 million over 10 days attempting to drive up McCain shares. It failed, look at the data from the period, every time the person placed 150K dollars on McCain, the market bought it up within minutes to the net effect that he lost 1.5 million dollars before giving up.

When an Intrade market is active, and that one was, the market will balance it out!

1) that just says that he didn't actually lose enough money to manipulate the market.

We need to keep in mind here that market manipulation of this sort loses money. The goal is to create a perception that is more valuable to the manipulator than the money they have lost. Which is why point 2) is so important. The guy lost $1.5 million. He could have chosen to lose a lot more. But where is the gain for that effort?

You're actually less likely to vote if your candidate seems to be winning in your state, I don't know how he could be more wrong. This also ignores the fact that spending a large amount of money in others ways, like advertising, actually works.

In that case, one would manipulate the market in favor of the candidate one wishes to lose, causing that candidates supporters not to go to the polls because they think the candidate is a shoe-in. And in case you haven't noticed, people hate political advertising more than they hate cancer and North Korea. This manipulation would be much stealthier.

Why would you want to prevent it?
You've got two odds. The odds on the market, and the odds in the real world. Manipulating the odds in the market, doesn't really affect the odds in the real world. It's the myth about betting.
If you and I have a bet about a football match, it doesn't affect the outcome.
So what if the odds are different? Well over time, those that persistently get the odds the wrong way round, lose money, and so reduce their bets or stop playing. With no people to take the other side of

There's a thing called reputation. If the reputation of these prediction markets is that they are manipulated then no on will trust them.

If a news outlet takes information from these manipulated markets, knowing they are manipulated, then that network was really just arbitrarily picking up pieces of data that appear to support whichever political party that station is allied to. They would have found anything that works to support their dialog.

Forex is more manipulated than an abused child but millions still think they are going to outsmart all the central banks in the world and bet their retirements on it.

Yeah, but no one trusts it as a means of predicting future events. The thing prediction markets rely on reputation for is their perception as useful for prediction (which is also what manipulators hoping to manipulate election results through those markets rely on.) So, its a problem, if it actually exists, with a certain amount of built in

One of your solutions is that you would flag bets where there has been a large movement in another market.

First, you would have to figure out all of the explicit angles. For a example, read about “Crack Spreads”. Here, you need to manage 3 or more different predictions that must keep a (mostly) constant ratio. Crude Oil (input) can be made into different combinations of gasoline, diesel, heating oil, etc. If these ratios deviate then there is money. You must identify all of them.http://en.wikipe [wikipedia.org]

A addendum to my post. Do you want the profit motive to a primary drive on your market?

Would somebody try to throw the market by manipulating the market? Maybe – but I don’t think it would have much impact. Corning / manipulating the market is hard in the long run. When the Hunt Brothers tried to corner the silver market in the 70s people kept on melting down their silverware.

You would want people to make big bets as insurance. If a company is worried that they will lose money on a Obama win the

You have an incentive problem. You are trying to harness the profit motivation to create efferent, accurate, predictions. Then you gimp the motivation by placing artificial limits. You are gimping your own system.

Rational agents will try to work around these limits, because any inefficiency that can be overcome is more profit. This can be legitimate – see my post of technical issue – or illegitimate. What’s to stop me from opening multiple accounts? What’s to stop me from hiring 200

Several of the ideas discussed focused on identifying when capped and uncapped markets differ and presume that indicates market manipulation. However, each of these concepts focused on manipulation that was absent a newsworthy trigger. The discussed interventions would fail when a market manipulator simply tied their manipulations to real world news events. A well-funded manipulator could time bets to magnify the impact of candidate A favoring news, and blunt that for candidate B. The arbitrage players wou

Many exchanges use an auction mechanism to prevent this from happening. When a trade is made that is more than x% different from the previous trade, the security goes into "auction mode" for a period of time. During this period all the bids and offers are taken, but only at the end of the auction, using an "uncrossing" algorithm, is a fair price determined for the security. The auction can of course also be manipulated, but you'll need a lot more money to influence the price.

Bennett's supposition is that an uncapped market could be manipulated, and then arbitrage trading between that and a capped market could cause the value of the capped market to swing away from some true value. The problem with this thesis is the assumption that both markets have equal trust. The capped market should be trusted more, and arbitrage trading between the two markets will tend to bring the two prices closer to what the capped market's original value was.

During the run-up to the election. . . when EVERYONE was saying that it was Romney's to lose. I kept referring to Intrade, which consistently showed that Romney NEVER had a snowball's chance.

Yet EVERY major news outlet, was Romeny Romney Romney 24x7 after the first debate; and then after 47%-gate, only a few begrudgingly accepted that Obama was going to win. (if I'm recalling my order of events properly) - but specifically, it was really like the final two weeks where everyone was just perplexed at how the polls were shifting to Romney - (they were wrong) and Intrade was showing a narrowing gap, but it was clearly still Obama's race.

They never accepted this reality until the returns were coming back at 5pm. And I *knew* that it was possible that Intrade could be "gamed" - but I always kind of figured it would be the OTHER team with the resources to do that.

But NOBODY in the popular press ever once cited Intrade. It was as if it did not exist at all. And they were right, by God. And afterwards, when they were sweeping up the pieces and trying to point fingers and figure out WHY they were wrong, they STILL didn't look at the obvious signs. I just don't get why this was soooo under the radar.

Instead of re-inventing the wheel, use the same mechanism that stock markets use: if the price moves too much in a short period of time, a circuit breaker [nasdaq.com] cuts in and suspends trading. It both stops the market getting skewed and signals that there's a problem.

If you are going to put a cap in place, how about a cap of "one person, one vote"? You know, kind of like the polling that has been done for a very long time?

If you want some kind of "vote with dollars" so you vote more based on how "confident" you are there is no such thing as market manipulation. A person willing to sink a huge amount of resources into a particular candidate represents an intensity of support. Or more accurately is represents a real pool of resources for the candidate. There is no mar

Arbitrage, by definition, is a riskless trade that generates a profit. Buy IBM in New York for $50 while simultaneously selling it on London at $51. It’s free money by exploring a inefficiency in the system – which makes the system more efficient in the whole.

I would think that cornering a market would seldom if ever be profitable directly. However, it can be and often will be profitable in the first or second derivative.

Cornering the oil market probably was not directly profitable t to Standard oil. But ever since that time, the Rockefellers have had a prominent politician, and that position has been immensely profitable.

The moreso if being a politician controls armies, because then you are talking about being able to profit off of the losses of the troops, t